POLITICAL CAMPAIGN MONEY FROM BIG OIL, GOVERNOR JACK DALRYMPLE, AND NORTH DAKOTAS CLASS C FELONY BRIBERY

STATUTE
By David C. Thompson and Erik A. Escarraman

Timeline and map are provided at the end of this document.

POLITICAL CAMPAIGN MONEY FROM BIG OIL, GOVERNOR JACK DALRYMPLE, AND NORTH DAKOTAS CLASS C FELONY BRIBERY STATUTE
DAVID C. THOMPSON and ERIK A. ESCARRAMN1

A.

The $46,600.00 in political contribution money taken by Dalrymple for Governor -- and Dalrymples decision to approve as Chairman of the North Dakota Industrial Commission -- a massive 30,883.94-acre oil and gas development mega unit in which the money contributors had working interests

Less than two weeks before Christmas last year, Harold Hamm -- the Oklahoma oil man whom Bloomberg Businessweek Magazine called The Man Who Bought North Dakota 2 -- gave twenty thousand dollars ($20,000) to Governor Jack Dalrymples election campaign3 -- at the very same time that Hamms company Continental Resources Inc. 4 had an interest in a pending case which awaited an imminent decision by Dalrymples Industrial Commission (NDIC) -- the most powerful administrative agency in North Dakota state government. 5
David C. Thompson, University of North Dakota School of Law (J.D. 1982), and Erik Escarramn, University of North Dakota School of Law (J.D. 2012). See, the Bloomberg Businessweek article, The Man Who Bought North Dakota, By Bryan Gruley, on January 19, 2012, http://www.businessweek.com/magazine/the-man-who-bought-north-dakota01192012.html. See, 2011, North Dakota Secretary of State Online Services - Election Management System Disclosure Reports, indicating a $20,000 contribution made on December 12, 2011, to Dalrymple for Governor by Harold Hamm, the CEO and majority shareholder of Continental Resources Inc. https://apps.nd.gov/sec/emspublic/gp/cfdisclosurerptsearchbycontrib.htm?year=2011&search.x=99&zipCo de=73702&result=10&cmd=byContribZip&type=byContrib&search.x=0&search.y=0 Harold G. Hamm is the Chief Executive Officer (CEO) and Chairman of the Board of the Oklahoma corporation Continental Resources, Inc. According a to a Schedule 13D filing on August 13, 2012 with the United States Securities and Exchange Commission, Harold G. Hamm is the beneficial owner of 126,196,166 voting shares of stock in this corporation, representing 68.2 % of the aggregate amount of such company shares. The Legislative Assembly created the Industrial Commission of North Dakota (the "Commission") in 1919 to conduct and manage, on behalf of the State, certain utilities, industries, enterprises and business
5 4 3 2 1

A mere eight (8) days after Harold Hamm gave this twenty thousand dollar ($20,000.00) contribution to Governor Dalrymples election campaign Dalrymple sat down as the Chairman of the three-member Industrial Commission and approved a massive (30,883.94-acre) oil and natural gas exploration and production mega unit -possibly unprecedented in terms of its size in North Dakota history -- covering a portion of the Bakken Oil Pool in which Hamms company Continental Resources, Inc. held oil and gas exploration and development leases.6
projects established by state law. See, e.g., the historical description of the Industrial Commission, as narrated in North Dakota Administrative Code 43-01-01-01(1). The 1953 North Dakota Legislative Assembly passed oil and gas conservation legislation, codified within N.D.C.C. Chapter 38-08, which gave the Industrial Commission jurisdiction and authority over all persons and property, public and private, necessary to enforce the provisions of the legislation. Id. The 1967 Legislative Assembly passed legislation, codified at N.D.C.C. Chapter 38-12, for the regulation, development, and production of subsurface minerals. Id. This 1967 legislation gave the Industrial Commission jurisdiction and authority over all persons and property, public and private, necessary to enforce the provisions of that legislation as well. Id. The members of the Industrial Commission are the Governor, the Attorney General and the Agriculture Commissioner of the State. North Dakota Administrative Code 43-01-01-01(2). The Governor is the Chairman, and a quorum for the transaction of business consists of the Governor and only one additional member. North Dakota Administrative Code 43-01-01-01(3). The Attorney General serves as attorney for the Industrial Commission. Id. Governor Dalrymple's term expires December 14, 2012. Attorney General Wayne Stenehjem has been elected to office for a term expiring December 31, 2014. Commissioner Goehring has been elected to office for a term expiring December 31, 2014. See, e.g., http://www.nd.gov/ndic/ic-about.htm. It is important to note that the role that Governor Dalrymple occupies as the Chairman of the North Dakota Industrial Commission is essentially that of a judge -- in which the Governor renders decisions in administrative cases which pend before him and the other two Industrial Commission members for adjudication. In this sense, the Class C felony crime of Bribery defined in N.D.C.C. 12.1-12-01 -- which will be discussed in detail hereafter -- treats those, such as Governor Dalrymple, who serve as administrative case decision-makers, in the same manner as the statute treats judges who are presiding over civil and criminal cases in the courts of this state. In this respect, the taking of political campaign contribution money by Governor Dalrymple in his capacity as an administrative case decision-maker is considered -- within the context of this Bribery criminal statute in a far more serious vein than a general campaign contribution to the Dalrymple for Governor Campaign would be treated -- where no pending or imminent administrative proceeding implicating an interest of the money-giver would be involved. In this respect the North Dakota Bribery statute treats the payment of political contribution money to a member of the Industrial Commission no differently than a situation in which someone would give a district judge money while that judge was preceding over a case in which the payer of the money has an interest. The December 20, 2011, decision of the Industrial Commission to approve this 30,883.94-acre Corral Creek-Bakken Unit -- which had been known only fifteen days previously in Industrial Commission filings as the Lost Bridge-Bakken Unit -- was made after a strange sequence of events that began on December 5, 2011.
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Harold Hamms $20,000.00 contribution on December 12, 2011, to Governor Dalrymples election campaign joined with another $26,600.00 in contributions made to the Dalrymple Campaign in 2011 from five other individuals and corporate entities who (which) which had oil lease interests this mega unit7 first named the Lost Bridge (Bakken Pool) Unit Area and then later renamed the Corral Creek-Bakken Pool.
In an Order of The (Industrial) Commission signed on December 5, 2011, Commission Director Lynn D. Helms narrated the procedural history of this mega unit, and Helms then noted that at a prior hearing (August 4, 2011), (c)ounsel for two mineral owners within the proposed Lost Bridge-Bakken Unit (Unit), requested the hearing be continued to a date in November 2011. The hearing officer continued the case to August 25, 2011. (emphasis added). See, Order of the (Industrial) Commission, Order No. 18128, entered into Case No. 15332 on December 5, 2011. In this December 5, 2011, Order, Helms stated that, (5) The issues in this case are of such complexity that additional time is necessary for the Commission to render a decision, therefore, this matter should be continued. This Order which was entered by Oil and Gas Director Lynn D. Helms, on behalf of the (Industrial) Commission this order December 5, 2011, concluded by stating, (1) This matter is hereby continued for forty-five (45) days or until further order of the (Industrial) Commission. (emphasis added). See, North Dakota Industrial Commission Order No. 18128, entered in Case No. 15332. Inexplicably, this Order No. 18128 -- although dated December 5, 2011, -- was not mailed to the parties in interest until a full nine days later, on December 14, 2011 -- two days after Oklahoma oil man Harold Hamm gave the sum of $20,000.00 to Governor Jack Dalrymples election campaign. For reasons which no one has ever explained, and without any order from the Industrial Commission to supersede or vacate the Commissions Order dated December 5, 2011 -- a mere six (6) days after the December 14, 2011, mailing of the December 5, 2011, Order No. 18128, which had announced a forty-five (45) day continuance of the mega unit hearing by the Commission -incredibly, the North Dakota Industrial Commission sat down on December 20, 2011, to approve this 30,883.93-acre mega unit in which Harold Hamms Continental Resources possessed a working interest along with several other oil companies. After the Industrial Commission gave its sudden approval to the Corral Creek-Bakken Unit on December 20, 2011 -- on the following day December 21, 2011, Bismarck attorney Lawrence Bender -the attorney who represented Harold Hamms Continental Resources Inc. -- gave $5,000.00 to Governor Jack Dalrymples election campaign. These additional contributors to Dalrymple for Governor are the following: Mike and Linda Cantrell, employees of Continental Resources, Inc. -- which owns leases in the mega unit -- contributed $5,000.00 on January 1, 2011; Mike Armstrong, Armstrong Corp, contributed $5,000 on July 21, 2011; Conoco Phillips Spirit PAC, the political action committee of the parent company of Burlington Resources Oil & Gas Company LP -- a working interest owner in the Corral Creek-Bakken Unit. Burlington Resources Oil & Gas Company LP operates as a subsidiary of Conoco Phillips contributed $1,000.00 on October 27, 2011 -- See, e.g. http://investing.businessweek.com/research/stocks/private/snapshot.asp?privcapId=4251646; Exxon Mobil Corporation PAC -- the political action committee of the parent company of XTO Energy, Inc., which had merged with Exxon Mobil Corporation on June 25, 2010, contributed $600.00 on December 5, 2011 (fifteen days before the above referenced December 20, 2011 Industrial Commission decision) -- See, e.g. http://www.upstreamonline.com/live/article218921.ece; Marathon Oil-MEPAC, the political action committee of Marathon Oil Company, a working interest owner in the Corral Creek-Bakken Unit, which contributed $5,000.00 on December 17, 2011 (a contribution which was made only three days before the Industrial Commissions above-referenced December 20, 2011 decision to approve the 30,883.94 mega unit); Lawrence Bender, attorney for Continental Resources, contributed $5,000.00 on December 21,
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As will be explained hereafter, this approval on December 20, 2011 by the North Dakota Industrial Commission of the 30,883.94-acre Corral Creek-Bakken Pool mega unit immediately brought with it the potential for the loss of millions of dollars in lost Oil Extraction Tax revenue for the State of North Dakota -- as well as the actual nullification of contingent lease term provisions in the many oil and gas lease contracts between the mineral interest owners (MIO) -- whose properties lie within the contours of this mega unit -- and oil and natural gas production companies such as Harold Hamms Continental Resources Inc.8 The abrogation of lease term duration and the effect that the establishment of this mega unit has in holding the MIO leases by production within the unit may well be particularly disadvantageous for the North Dakota Board of School Lands, which enters into lease agreements with oil producers9 -- a particularly ironic situation, given the fact
2011; Denbury Resources Inc Political Committee -- political action committees of Denbury Resources Inc. -- and a working interest owner in the Corral Creek-Bakken Unit, contributed $5,000.00 on December 27, 2011. Documentation of these contributions can be accessed from the North Dakota Secretary of State website at the following link: https://apps.nd.gov/sec/emspublic/gp/cfdisclosurerptsearchbyrpt.htm?cmd=DisplayReport&type=byRpt&fi lerSeqNo=4149&lastName=Dalrymple&filingDate=01/31/2012&reportNo=1&year=2011&filerType=SCF &reportType=Y&result=All&searchReportType=Y&offset=0&offset2=0 Once the Industrial Commission has approved a unitization, (p)roperty rights, leases, contracts, and all other rights and obligations must be regarded as amended and modified to the extent necessary to conform to the provisions and requirements of . . . any valid and applicable plan of unitization or order or the [Industrial Commission] . . . . N.D.C.C. 38-08-09.8. In fact, once a unit is established by the North Dakota Industrial Commission, the unit becomes its own legal entity, being a body politic and corporate, capable of suing, being sued, and contracting as such in its own name. N.D.C.C. 38-08-09.7. See the demarcation of twenty (20) separate tracts of North Dakota State Lands which lie within this Corral Creek-Bakken mega unit -- as illustrated in Exhibit A of the Burlington Resources Oil & Gas Company, LP petition for unitization to the North Dakota Oil & Division, dated June 13, 2011. Significantly, the potential for serious oil production royalty revenue deficits for public School Trust Funds -- administered by the North Dakota Department of Trust Lands Surface Management Division -- was described in an e-mail dated October 20, 2011, from Drew A. Combs, Director of Minerals Management Division of the North Dakota Department of Trust Lands, on which e-mail Mike Brand, Director of that departments Surface Management Division, was copied -- to Bruce E. Hicks, the Assistant Director of the Industrial Commissions Oil and Gas Division [Lynn Helms assistant], wherein Mr. Combs complained to Mr. Hicks as follows,
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that Governor Dalrymple sits as one of the six members of the Board of University and School Lands -- the body which administers these state lands in trust for the benefit of North Dakotas public schools and Universities.10 Anecdotal evidence already exists that the establishment of the Corral CreekBakken Unit on December 20, 2011 -- which became effective as of January 1, 2012 -has severely reduced royalty payments for private mineral interest owners of tracts located within the huge 30,883.94-acre area of this mega unit. Similar steep declines in
Bruce, Mike Brand and myself have some questions about this Lost Bridge Federal unit that Conoco is proposing. Before we get all up in arms about it, we have a few questions of what the proposal is and if it is going to benefit us or not. One of the things that has got us so upset is that they are playing this off as a "done deal", when we are discussing pad locations and the like. We are just trying to figure out if we should support or protest at the next hearing and if we do decide to protest, we want our concerns to be valid, other than saying, "we don't like it". I know you and Lynn are busy, so If you could forward me a number of someone in your shop that is familiar with this, I would appreciate the help. Thanks, Drew A. Combs (emphasis added) However, despite these potentially serious and legitimate concerns voiced by the top officials of the Minerals Management Division of North Dakota Department of Trust Lands -- the above-referenced Bruce E. Hicks -- the second-ranking official in the Industrial Commissions Oil and Gas Division -- responded to Mr. Combs e-mail of October 20, 2011, with a response e-mail several hours later on the same day, stating tersely that, (t)he record of this case in now closed . . . (a)nother hearing is not being held and the Commission plans to bring an order to the IC [Industrial Commission] meeting on Nov 21 (sic) to dispose of this case. (emphasis added) . This exchange apparently had the effect of terminating any further exchange between officials of the Minerals Management Division of the North Dakota Department of Trust Lands -- and officials of the North Dakota Industrial Commissions Oil and Gas Division, as no further communications between these two agencies of North Dakota state government appear in the record of this case. As stated above, on December 20, 2011, the North Dakota Industrial Commission, chaired by Governor Jack Dalrymple, approved the 30,883.94-acre Corral Creek-Bakken Unit -- which was renamed from its former name referenced in the Drew A. Combs e-mail, the Lost Bridge Unit.
10

See, generally, N.D.C.C. Chapter 15-01.

royalty payments to North Dakota Board of School Lands for oil development on state school lands have likely occurred as well since January 1, 2012. B. The Class C Felony crime of Bribery as defined N.D.C.C. 12.1-12-01 -- and this criminal statutes application to the political campaign money given to Dalrymple for Governor - and Governor Jack Dalrymples decision as the Chairman of the North Dakota Industrial Commission to judge and decide the outcome of the administrative proceedings to establish an unprecedented oil and gas development mega unit.

Significantly in this context, almost four decades ago, back in the year 1973, a Class C Felony criminal statute entitled Bribery was enacted into law, with this statute having been codified as N.D.C.C. 12.1-12-01. Specifically, N.D.C.C. 12.1-12-01(3) provides as follows: 3. A prima facie case is established under this section upon proof that the actor knew that a thing of pecuniary value was offered, given, or agreed to be given by, or solicited, accepted, or agreed to be accepted from, a person having an interest in an imminent or pending: a. examination, investigation, arrest, or judicial or administrative proceeding; or b. bid, contract, claim, or application, and that interest could be affected by the recipient's performance or nonperformance of his official action or violation of his known legal duty as a public servant.

N.D.C.C. 12.1-12-01(3). (emphasis added) Under this statute, criminal liability for the contributor of political campaign money potentially occurs where that contributor need only: (1) have an interest in a pending or imminent administrative proceeding; (2) know that this interest could be affected by the receiving Industrial Commission members performance or non performance of his official action as an Industrial Commission member; and

(3) while in possession of this knowledge, that contributor goes ahead and makes the contribution of the thing of value11 to the Industrial Commission member. Arguably, this criminal liability for the money contributor attaches, even if the contribution-receiving Industrial Commission member would later recuse himself. Correspondingly, criminal liability for the campaign contributionreceiving Industrial Commission member attaches where that Industrial Commission member: (1) knows that the political campaign money contributor has an interest in a pending or imminent administrative proceeding; (2) knows that the Industrial Commission members performance or nonperformance of his official action could affect the interest which the money contributor has in the pending or imminent administrative proceeding; and (3) having this knowledge, the Industrial Commission member nevertheless accepts the political campaign money contribution
It is beyond question that campaign contributions are included within the statutory definition of the term thing of value for the purposes of N.D.C.C. Chapter 12.1-12. See, e.g., N.D.C.C. 12.1-12-09. Parenthetically, it should be noted that Section II: (A) (19) of the Industrial Commission of North Dakota Code of Ethics adopted by the Industrial Commission as a simple resolution on February 22, 1995, states that, (a)nything of (v)alue does not mean a campaign contribution properly received and reported in accordance N.D.C.C. Chapter 16.1-08.1. This Industrial Commission of North Dakota Code of Ethics is of no binding legal significance, because it has never been adopted as a formal regulation of the North Dakota Industrial Commission. Specifically, this Code of Ethics has never been adopted as an agency regulation of the Industrial Commission pursuant to the requisite provisions of the North Dakota Administrative Agencies Practice Act, N.D.C.C. Chapter 28-32. As such, this Code of Ethics is not included within the North Dakota Administrative Code (N.D.A.C.), and has no binding legal effect whatsoever. In any event, not even a valid, properly-adopted administrative regulation could possibly preempt the criminal statute N.D.C.C. 12.1-12-01 (defining the Class C Felony crime of Bribery) or the Definitions statute N.D.C.C. Chapter 12.1-12, 12.1-12-09. To the extent that the matter even needs the citation of decisional authority at all, it is well-settled law that an administrative regulation cannot supersede, amend, modify or expand a duly enacted statute by a legislative body, since the authority to issue such regulations is conferred by a statute. Auburn Housing Authority v. Givens. 821 N.Y.S.2d 839, 840 (N.Y.Ct. Ct. 2006). Stated even more directly, an administrative regulation cannot ever supersede a statute. Whenever there is a conflict between a statute and an administrative regulation, it is elementary that the statute controls. Halfhill v. Kentucky Retirement Systems, Board of Trustees, 2003 Ky. App. Unpub. LEXIS 803, *11 (Ky. App. June 20, 2003).
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from the person having an interest in (the) imminent or pending . . . administrative proceeding. In the instance of the North Dakota Industrial Commissions December 20, 2011, action approving the 30,883.94-acre Corral Creek-Bakken Pool oil and natural gas exploration and production mega unit -- a decision which became effective January 1, 2012 -- Governor Dalrymple sat as the Chairman of the Industrial Commission after having had his election campaign committee take $1,000 dollars12 on October 27, 2011
Of course, the $1,000.00 contribution from Conoco Philips -- the parent company of the applicant Burlington Resources Oil & Gas Company LP combined with the $45,600.00 in additional political campaign money which was taken by Dalrymple for Governor between October 27, 2011, and December 27, 2011. See, Footnote 7, supra. Additionally, it should be noted that in the Industrial Commissions December 20, 2011 Order No. 18849, approving the Corral Creek-Bakken Unit, the Commission ruled that it shall have continuing jurisdiction over this 30,883.94-acre mega unit. See, Order No. 18849 of the North Dakota Industrial Commission entered in Case No. 15332 at 70 at page 18 thereof. See, also, N.D.C.C. 38-08-09.2, setting forth the power and authority of the North Dakota Industrial Commission, which is vested with continuing jurisdiction, and authority, including the right to describe and set forth in its orders all those things pertaining to the plan of unitization . . . which are necessary or proper . . . . Given this continuing jurisdiction which the North Dakota Industrial Commission thus retains over the Corral Creek-Bakken Unit, it is also highly relevant that at least $35,000.00 in additional political campaign money was taken by Dalrymple for Governor this year before the June 2012 Primary Election from the working interest owners in this Corral Creek-Bakken mega unit. These contributions include the following working interest owners in the Corral Creek-Bakken Unit: Mike Armstrong of the Armstrong Corporation $4,000.00 given on May 17, 2012, John Hess Chief Executive Officer (CEO) of Hess Corporation, $25,000.00 given on May 21, 2012, the political action committee for Marathon Oil Company, $5,000.00 given May 22, 2012, the political action committee for Denbury Resources Inc., $1,000.00 given on May 23, 2012. See, the 2012 Pre-Primary Candidate Committee Disclosure Report for Dalrymple for Governor at the following link: https://apps.nd.gov/sec/emspublic/gp/cfdisclosurerptsearchbyrpt.htm?cmd=DisplayReport&type=byRpt&fi lerSeqNo=4394&lastName=Dalrymple&filingDate=05/31/2012&reportNo=1&year=2012&filerType=SCF &reportType=P&result=All&searchReportType=P&offset=0&offset2=0. Indeed, the political contribution money identified in this footnote and Footnote 5, supra, may represent only portion of the political campaign money which has been taken by Dalrymple for Governor from working interest owners in Corral Creek-Bakken Unit, because of the limitations of North Dakotas political campaign disclosure laws. Specifically, it is unknown how much political contribution money has been taken by Dalrymple for Governor since the pre-primary election disclosure reports were filed by the Dalrymple Campaign back in May and June of this year. No new financial disclosure reports are required until 20 days prior to the November General Election -when contributions in excess of $500 during the twenty day period before the election must be disclosed in a supplemental filing pursuant to NDCC section 16.1-08.1-04. Furthermore, political contributions in amounts of less than $500 need not be reported until October 25, 2012 -- essentially one week before the November election. So at present, there is no way of knowing whether or in what dollar amounts additional political campaign money has been flowing into the Dalrymple for Governor campaign since the primary election disclosure reports were filed by the Dalrymple campaign in late May and early June.
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from the political action committee of Conoco Philips -- the parent company of Burlington Resources Oil & Gas Company LP13 the company which had filed the application to establish this mega unit back on June 20, 2011.14 Therefore, for the purposes of N.D.C.C. 12.1-12-01, Governor Dalrymples official action as a public servant was to judge the petition and to render his adjudicative decision relative to it. On December 20, 2011, Governor Dalrymple, announced at the meeting of the North Dakota Industrial Commission on that date his ruling of Yes15 -- signifying his approval of Corral Creek-Bakken Pool mega unit application. It is important to note that the Class C Felony crime of Bribery, as defined in N.D.C.C. 12.1-12-01, clearly does not require that evidence of an actual quid pro quo be presented by the prosecution in order to obtain a conviction. Understandably, a public servant who has taken political campaign money from a party who/which has a interest in a pending or imminent administrative proceeding can hardly to be expected to admit publicly that there had been a deal, whereby the campaign contribution money had been formally traded for that public servants official action. Indeed, N.D.C.C. 12.1-1201 requires no such thing, as is made clear by the express language of N.D.C.C. 12.112-01(3).

13 14

See, Footnote 7, supra.

See, the document Petition of Approval of Plan of Unitization, filed with the North Dakota Industrial Commission by Burlington Resources Oil & Gas Company LP of Midland, Texas -- a wholly owned subsidiary of Conoco Phillips Company -- dated and filed June 20, 2011. See, the audiotape record of the North Dakota Industrial Commission meeting held on December 20, 2011.
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From public statements, which Governor Dalrymple has made on the subject of the Dalrymple Campaigns acceptance of the twenty thousand dollar ($20,000.00) political campaign contribution on December 12, 2011 from Harold Hamm -- it is apparent that Dalrymple openly disregards N.D.C.C. 12.1-12-01(3). In an article, which was published on July 15, 2012, in the Fargo Forum, Dalrymple addressed the subject of Dalrymple for Governor having received the $20,000.00 from oil man Harold Hamm on December 12, 2011, and Dalrymple admitted that Hamm and other oil and gas industry executives have been supporting my campaign for Governor, and I assume its because they think Im doing a good job.16 C. The unprecedented scope and impact of the North Dakota Industrial Commissions approval of the 30,883.94acre Corral Creek-Bakken Pool mega unit.

The decision by the North Dakota Industrial Commission on December 20, 2011, to create an unprecedented 30,883.94-acre mega unit derives from the power given to the Commission by the North Dakota Legislative Assembly to order the establishment of so called units -- with or without the permission or agreement of all mineral interest owners (MIO) within the boundaries of that unit area -- to provide for consolidated development and operation of an oil pool as single unit.17

Fargo Forum Article Review Show States Republicans Benefiting More From Oil And Gas Contributions Than Democrats, by Kristen Daum, July 15, 2012. See, https://secure.forumcomm.com/?publisher_ID=1&article_id=367501&CFID=374894627&CFTOKEN=26 757025. See, e.g., http://taylorfornorthdakota.com/news/?news_id=78. The process of unitization is principally governed by statute, and here in North Dakota, it is regulated pursuant to N.D.C.C. 38-08-09 through N.D.C.C. 38-08-09.17.
17 16

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Essentially, all power and authority in this state over the establishment and operations of these units -- a process known unitization -- has been legislativelygranted to the North Dakota Industrial Commission.18 The ostensible purpose of unitization is to join together -- by the authority of an order of the North Dakota Industrial Commission -- the mineral interests of various MIOs within a particular oil reservoir to engage in coordinated exploration and development operations, with the purported objective of increasing the ultimate recovery of oil and gas within the area of the unit.19 However, in the instance of the Industrial Commissions creation of the 30,883.94-acre Corral Creek-Bakken Pool mega unit by its action on December 20, 2011, the Commission ventured into territory highly unusual (nationally) and even unprecedented (here in North Dakota).20 In addition, once the Industrial Commission established this Corral CreekBakken Pool mega unit, this event had the effect of superseding important features of

See, N.D.C.C. 38-08-09.2, setting forth the power and authority of the North Dakota Industrial Commission, which is vested with continuing jurisdiction, and authority, including the right to describe and set forth in its orders all those things pertaining to the plan of unitization . . . which are necessary or proper . . . .
19 20 18

See, N.D.C.C. 38-08-09.3 and 38-08-09.4.

One party appearing before at a hearing conducted by the Oil & Gas Division of the North Dakota Industrial Commission on August 4, 2011, relative to the proposal by Burlington Resources Oil & Gas Company LP to establish what became the 30,883.94-acre Corral Creek-Bakken Pool mega unit, stated that Burlingtons proposal for unitization was highly unusual (nationally) and unprecedented in North Dakota, because it involved the use of unitization in a new oil field. See, the audio tape the Oil & Gas Division hearing of August 4, 2011. Indeed, it is a fact that the Burlington Resources proposal to establish this huge mega unit was unprecedented in North Dakota, because all previous unitizations in the state have been exclusively for the purpose of secondary recovery, i.e., water, air, and carbon pressurization, after existing wells in the area have been depleted over a period of many years. In fact, the law allowing for unitization discusses only pressure-maintenance and repressuring operations and does not even mention new production wells in a proposed unit. See generally, N.D.C.C. 38-08-09 through 38-08-09.17.

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mineral interest owners (MIO) leases with oil and gas companies21 -- and from time that this unitization became effective January 1, 2012, all of the leases in the unit are held by production -- meaning that none of the leases will expire, and no leaseholder within the unit will be able to negotiate a new lease for the entire time that this mega unit continues to exist -- in practical terms, a minimum of ten (10) years -- or until January 1, 2022.22 Another concern expressed by mineral interest owners in the proceedings conducted by the Industrial Commissions Oil & Gas Division was that Commission approval of this 30,883.94-acre mega unit would decrease the incentive for production and drilling within this huge unit. Already, the royalty payments for owners of mineral interest within the unit already have become a mere fraction of what they were before the unit was established. D. The negative effect of stripper wells upon North Dakota state tax revenues -- and the corresponding potential for the gigantic and unprecedented Corral CreekBakken Pool mega unit to grant oil companies a loophole device to avoid completely payment of Oil Extraction Tax on oil production from wells situated within the boundaries of this large unit.

Once the Industrial Commission has approved a unitization, (p)roperty rights, leases, contracts, and all other rights and obligations must be regarded as amended and modified to the extent necessary to conform to the provisions and requirements of . . . any valid and applicable plan of unitization or order or the [Industrial Commission] . . . . N.D.C.C. 38-08-09.8. N.D.C.C. 38-08-09.4(7) provides that the unit may be dissolved ten years after the unit agreement becomes effective upon petition . . . by the royalty owners who are credited with at least sixty percent of the production and proceeds thereof.
22 21

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For more than thirty (30) years now, North Dakota state law has provided for two separate taxes upon oil production revenues -- the Oil and Gas Gross Production Tax and the Oil Extraction Tax.23 The Oil and Gas Gross Production Tax is a tax of five percent (5%) of the gross (oil production) value at the well . . . including the royalty interest24 -- and the Oil Extraction Tax is a tax of six and one-half percent (6.5%) of the gross value at the well of the oil extracted . . . 25 [emphasis within direct statutory quotations added]. Therefore, between the five percent (5%) Oil and Gas Gross Production Tax, and the six and half percent (6.5%) Oil Extraction Tax -- crude oil produced from wells in North Dakota are subject to total tax of eleven and half percent (11.5%) of production value -- with the actual tax revenue derived by the state from these taxes obviously varying by fluctuations in the price of oil.

See, generally, NDCC Chapter 57-51.1 [the Oil Extraction Tax], and N.D.C.C. Chapter 57-51 [the Oil And Gas Gross Production Tax].
24 25 23

N.D.C.C. 57-51-02. N.D.C.C. 57-51.1-02.

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i. The stripper well exemption from the oil extraction tax It should be noted that provision of present North Dakota law completely exempts from the 6.5% Oil Extraction Tax any and all production from so-called stripper wells -- meaning that the State of North Dakota does not collect any Oil Extraction Tax revenue from oil production from these stripper wells.26 As of October 19, 2011, there existed 3,458 stripper well properties in North Dakota, of which 390 stripper well properties were situated over the Bakken Pool.27 In seeking a stripper well property status, an oil producer operator may take advantage of the broad statutory definition of the term property, under which (a) producer shall treat as a separate property each separate and distinct reservoir subject to the same right to produce crude oil . . . .28 Overlaying this administrative definition of the term property has been recognition by the Oil & Gas Division of the Industrial Commission that the Bakken Formation is considered to be a single reservoir of oil -- and corresponding oil production

See, N.D.C.C. 57-51.1-03(2), exempting from the oil extraction tax (t)he activity of extracting from the earth from a stripper well property. A stripper well property for the purposes of this Oil Extraction Tax exemption is defined to mean an oil well the production of which did not exceed ten barrels per day for wells of a depth of six thousand feet or less, fifteen barrels per day for wells of a depth of more than six thousand feet but not more than ten thousand feet, and thirty barrels per day for wells of a depth of more than ten thousand feet during any preceding consecutive twelve month period. See, the Minutes of the October 19, 2011, meeting of the North Dakota Legislative Assemblys Interim Taxation Committee, at page 5 thereof, reporting testimony given at this meeting by Lynn Helms, director of Mineral Resources, the principal staff person for the Oil & Gas Division of the North Dakota Industrial Commission. See, North Dakota Administrative Code Section 43-02-08-02(5), as this regulation of the Oil & Gas Division of the North Dakota Industrial Commission cross-references NDCC 57-51.1-01(6).
28 27 26

14

-- for the purposes of determining Oil Extraction Tax exemption eligibility for a proposed stripper well property.29 Furthermore, in its order entered on December 20, 2011, the North Dakota Industrial Commission determined -- as it is required to do in establishing a unit under the statutory mandate of N.D.C.C. 38-08-09.4 governing unitizations -- that the 30,883.94-acre Corral Creek-Bakken Unit constituted a common source of supply or portion thereof to be included within the unit area30 -- being also a single reservoir and common source (of oil).31 The Industrial Commissions principal staff person who runs the Industrial Commissions Oil and Gas Division, Lynn Helms, at a meeting of the Interim Taxation Committee stated on October 19, 2011 -- according to the Committees formal minutes -that the stripper well property exemption is pool-specific, meaning that only the Bakken pool would have stripper well property status and wells drilled into the Three Forks

See, the Minutes of the October 19, 2011, meeting of the North Dakota Legislative Assemblys Interim Taxation Committee, at page 6 thereof, reporting testimony given at this meeting by Lynn Helms, director of Mineral Resources, the principal staff person for the Oil & Gas Division of the North Dakota Industrial Commission. These minutes paraphrase Mr. Helms testimony wherein Mr. Helms acknowledges that the Bakken formation is a common oil pool.
29

However, N.D.C.C. 38-08-09.4 contains a presumption against the creation of mega units such as the Corral Creek-Bakken Pool mega unit which relies upon the common source of supply being the entire Bakken Oil Pool. This statute states in pertinent part that, (a) unit may be created to embrace less than the whole of a common source of supply only where it is shown by the evidence that the area to be so included within the unit area is of such size and shape as may be reasonably required for the successful and efficient conduct of the unitized method or methods of operation for which the unit is created . . . . (emphasis added). See, Order No. 18849 of the North Dakota Industrial Commission entered in Case No. 15332 at 35 and 36 at page 8 thereof.
31

30

15

Formation on that property would not be entitled to the stripper well property exemption.32 Under the attendant circumstances in the instant case, if a single stripper well in the Bakken pool were to be qualified as such by the North Dakota Industrial Commission, all production from every oil well within this 30,883.94-acre mega unit would be exempted from the 6.5% Oil Extraction Tax -- meaning the State of North Dakota would be deprived of dozens of millions of dollars over the minimum ten-year life of this Corral Creek-Bakken Unit. Correspondingly, the oil industry producers and MIOs -- the so-called working interest owners within the boundaries of this Corral Creek-Bakken Unit -- would be able to themselves retain and pocket these millions of dollars, which of course would be millions in lost tax revenue for the State of North Dakota. Ironically, therefore, through the mechanism and device of using a comparatively low production oil well qualified as a stripper well within the contours of the Corral Creek-Bakken Unit -- which oil well would thus be completely exempt from the 6.5% Oil Extraction Tax under existing law -- all wells within this unit would share the exemption of the stripper well from this tax -- meaning all producing wells in the unit would pay only the 5% Oil and Gas Production Tax, rather than the 11.5% combined Oil Extraction and Oil and Gas Production Tax.

See, Minutes of the October 19, 2011, meeting of the North Dakota Legislative Assemblys Interim Taxation Committee, at page 6 thereof, testimony given at this meeting by Lynn Helms, director of Mineral Resources, the principal staff person for the Oil & Gas Division of the North Dakota Industrial Commission. These minutes paraphrase Mr. Helms testimony, wherein Mr. Helms acknowledges that the Bakken formation is a common oil pool.
32

16

In fact, the potential for oil industry abuse of the above-described Oil Extraction Tax exemption for stripper wells was even identified and discussed by North Dakota Legislators during the current 2011-2012 Biennium.33 The analogous discussion topic at the Interim Taxation Committee of October 16, 2011, was the potential for abuse by the oil industry in a situation where oil producers would drill a new well alongside a stripper well, with the result being the new well would receive the stripper well exemption from the 6.5% Oil Extraction Tax.34 One legislator at this meeting of the interim Taxation Committee is reported by the Committees official minutes as having stated that there is concern that gaming by oil companies could obtain an extraction tax exemption for a high-production well drilled on a stripper well property . . . , with Mr. Helms (having responded) said that is a valid concern for Bakken and Three Forks Formation drilling.35 (emphasis added). Ironically, the very kind of abuse and gaming by oil producers in schemes to locate Extraction Tax-exempt stripper wells within large units (such as the 30,883.94acre Corral Creek-Bakken Unit), so as to immunize high production oil wells within a unit, would accomplish the very same objective as has been advocated by Oklahoma oil man Harold Hamm. As is explained below, Hamm who first sought to lower the oil
See, Minutes of the October 19, 2011, meeting of the North Dakota Legislative Assemblys Interim Taxation Committee, at page 5-6 thereof, reporting testimony given at this meeting by Lynn Helms, director of Mineral Resources, the principal staff person for the Oil & Gas Division of the North Dakota Industrial Commission. See, Minutes of the October 19, 2011, meeting of the North Dakota Legislative Assemblys Interim Taxation Committee, at page 5 thereof, reporting testimony given at this meeting by Lynn Helms, director of Mineral Resources, the principal staff person for the Oil & Gas Division of the North Dakota Industrial Commission.
34 33

See, Minutes of the October 19, 2011, meeting of the North Dakota Legislative Assemblys Interim Taxation Committee, at page 5 thereof, reporting an exchange between a North Dakota Legislator and Lynn Helms, director of Mineral Resources, the principal staff person for the Oil & Gas Division of the North Dakota Industrial Commission.

35

17

extraction tax, and then campaigned for repeal of this tax -- namely the reduction of North Dakota State Taxation on oil well production from the present 11.5% level to 5%. ii. Oklahoma oil man Harold Hamms multi-front play36 -- first for the reduction -- and then for the repeal of North Dakotas 32-year-old 6.5 percent Oil Extraction Tax. On January 24, 2011, former Governor Ed Schafer traversed the State of North Dakota in a colorfully and professionally painted bus, his smiling face emblazoned on its side, championing that which Schafer identified as an alleged non-profit organization bearing the name Fix The Tax.37 While Schafer asserted at the time that the group was working to raise money through events scheduled throughout North Dakota, he declined to identify by name the financial backers of Fix the Tax. 38 Later, Schafer admitted the group was funded by Harold Hamm, CEO of Continental Resources, a company that would have benefitted hugely if the Fix The Tax scam had worked.39 For his part, Harold Hamm was speaking out of both sides of his mouth in 2011 during his campaign to reduce or eliminate North Dakotas 32-year-old Oil Extraction Tax.

36

http://www.youtube.com/watch?v=OQ4ARP-bwfU.

37

http://www.inforum.com/event/image/id/288911/headline/Ed%20Schafer%20announces%20the%20%22Fi x%20the%20Tax%22%20campaign%20/ http://bismarcktribune.com/business/local/schafer-stumps-for-lower-oil-tax/article_2134ca1c-280a-11e0879a-001cc4c002e0.html?print=true&cid=print

http://www.northdecoder.com/Latest/the-pelican-brief-part-3.html

18

On one hand, Hamm rather incredibly claimed -- including in testimony before a committee of the North Dakota Legislative Assembly on March 16, 2011 -- that the 11.5 percent combined level of the states Oil Extraction Tax and its Oil and Gas Production Tax was some how endangering future oil development.40 On the other hand, Harold Hamm was quoted as saying we expect the Bakken to drive our growth for many years, and as an investigative article published on March 20, 2011, revealed -- not only North Dakotas 11.5 percent total taxation of oil development competitive with oil production taxes in other jurisdictions, but also that a number of false impressions had been propagated by the Fix The Tax folks.41 Ultimately, the Fix The Tax campaign funded substantially by Harold Hamm -- and fronted at podiums throughout North Dakota in early 2011 by former Governor Ed Schafer -- was unsuccessful in persuading legislators during the 2011 Session of the Legislative Assembly to lower the Oil Extraction Tax below its 32-year-old original level of 6.5%.42 However, despite this failure of the Fix The Tax campaign, former Governor Schafer was granted nearly a million ($1-million) dollars worth of shares (11,945 shares) of common stock in Harold Hamms company43 -- Continental Resources Inc. - on November 2, 2011, and also a seat on Continentals board of directors.44
40 41 42 43

http://www.youtube.com/watch?v=FFVztHWQ06c&feature=relmfu http://www.northdecoder.com/Latest/nix-the-fix.html http://www.legis.nd.gov/assembly/62-2011/bill-status/house/HB1467.PDF

See, the Form 4 United States Securities and Exchange Commission filing dated November 4, 2011, by Reporting Person Edward T. Schafer, and Issuer Continental Resources Inc., evidencing the award of 11,945 shares Continental Resources Inc. common stock to Shafer on November 2, 2011.
44

http://www.contres.com/about/leadership/edward-t-schafer

19

E.

Because of the potential violation of N.D.C.C. 12.1-12-01 [the North Dakota Class C Felony Bribery statute] as described in Subsection B above -- and because North Dakota Attorney General Wayne Stenehjem joined with Governor Jack Dalrymple in the December 20, 2011, decision by the North Dakota Industrial Commission to establish the 30,883.94-acre Corral Creek-Bakken Unit -- this matter is being referred to the United States Attorney for the District of North Dakota for possible federal prosecution pursuant to 18 U.S.C. 666.

Although the North Dakota Class C Felony Bribery statute of N.D.C.C. 12.112-01 -- as explained specifically in N.D.C.C. 12.1-12-01(3) -- is a North Dakota state criminal statute45 -- there is also a basis for federal criminal jurisdiction under 18 U.S.C. 666, because of the nature of the crime described and explained in N.D.C.C. 12.1-1201(3). See, e.g., United States v. Snyder, 930 F.2d 1090, 1092-1093 & 1095 (5th Cir. 1991) [18 U.S.C. 666 extends federal jurisdiction to cases involving bribery by officials of state agencies -- with the crime of bribery defined by state law -- that receive federal funds -- and under 18 U.S.C. 666 a United States District Court has jurisdiction regardless of whether the alleged offense had any impact on the federal funds actually received by the state entity].
Obviously, because N.D.C.C. 12.1-12-01 is a North Dakota state criminal statute, there exists North Dakota state court jurisdiction over a state prosecution for violation of this statute. However, under analogous circumstances which have been part of public discussion within the context of the current Public Service Commission election campaign -- wherein Dem-NPL PSC candidate Brad Crabtree has raised issues deriving from this North Dakota Class C Felony Bribery statute -- with specific reference to campaign contribution money taken by Republican PSC candidates Kevin Cramer, and Brian Kalk from parties to active PSC regulatory cases -- some citizens have called upon Republican North Dakota Attorney General Wayne Stenehjem to investigate and prosecute these alleged criminal Bribery violations by PSC Commissioners Cramer and Kalk. In a letter to the editor, published in The Forum of Fargo-Moorhead on September 16, 2012, Stenehjem claimed that he did not have the constitutional and statutory authority to prosecute such alleged crimes, with Stenehjem stating instead that all alleged violations of state law are prosecuted by the elected states attorney of each county, not the attorney general. Although the authors of this document respectfully disagree with Attorney General Stenehjems legal position in this regard, it is apparent to these authors that Stenehjem would be especially unwilling to undertake a thorough, aggressive investigation and potential prosecution of a sitting Republican Governor who sits on the North Dakota Industrial Commission with Stenehjem and Agriculture Commissioner Doug Goehring as the three members thereof. It is for these reasons that the above-recited legal grounds for the exercise of federal prosecutorial jurisdiction are recited and set forth above.
45

20

Corral Creek-Bakken Unit Timeline

01/01/2011 Petition to Industrial Commission for unitization with UnitSource packet to working interest owners notifying of August 4 O&G hearing Notice of continuance from August 4 to August 25 O&G hearing on unitization petition O&G notice of 60 day continuance Attorney for industry provides follow-up information from August 25 hearing Attorney for industry complains that O&G is informally taking information from opponents O&G notice of 45 day continuance 06/20/2011 07/21/2011 08/04/2011 08/25/2011 09/28/2011 10/12/2011 10/27/2011 11/16/2011

Mike Cantrell (Continental)

$5,000.00

Mike Armstrong

$5,000.00

Conoco Phillips Spirit PAC

$1,000.00

12/05/2011 12/05/2011 12/12/2011 Exxon Mobil Corporation PAC Harold Hamm (Continental) Marathon OilMEPAC Lawrence Bender (Cont. Atty) Denbury Res. Inc. Pol. Comm. Total 2011: 05/17/2012 05/21/2012 05/22/2012 05/23/2012 Mike Armstrong John Hess Denbury Res. Inc. Pol. Comm. Total 2012: Total Political Contributions: $600.00 $20,000.00 $5,000.00 $5,000.00 $5,000.00 $46,600.00 $4,000.00 $25,000.00 $1,000.00 $35,000.00 $81,600.00

Affidavit of mailing 12/05 notice of 45 day continuance Industrial Commission meets, approves unitization

12/14/2011 12/17/2011 12/20/2011 12/21/2011 12/27/2011

Marathon Oil Co. Employees PAC $5,000.00

Industrial Commission meets, approves amendment to field rules for Continental and Denbury

07/13/2012

XTO XTO 5B XTO -39D XTO BURLINGTON 9A 6C 9B BURLINGTON 17B 17A BURLINGTON CONTEX 15B -1516A CONTEX 15A -1310D -182A BURLINGTON BURLINGTON -10-25C 5B BURLINGTON EOG 9C -115D -712 5C BURLINGTON 5A 5E

Corral Creek-Bakken Unit

BURLINGTON 7A -6DENBURY 7B BURLINGTON 8A

BURLINGTON

XTO 6A

BURLINGTON

5A

(Formally known as Lost Bridge Unit Area) DUNN COUNTY, NORTH DAKOTA
DALRYMPLE CAMPAIGN CONTRIBUTORS Acreage FEDERAL LAND STATE LANDS PATENTED LANDS TOTAL 3,921.39 2,136.00 24,826.55 30,683.94 Percentage 12.70% 6.92% 80.38% 100.00%

-58C 6B DENBURY 8B

-4BURLINGTON

BURLINGTON

-77C

BURLINGTON -88A BURLINGTON

-9-

Note: These acres represent total net acres in the unit area

WORKING INTEREST OWNERS

ARMSTRONG HESS BURLINGTON CONTEX CLR CP DENBURY EOG MARATHON XTO

CONT 19A -1819D BURLINGTON BURLINGTON 19B 19C 19E

BURLINGTON

-1718A

-16BURLINGTON 17D 17C

BURL- -14ING- CONTTON EX CONTEX 15E 15C 15D BURLINGTON CONTEX

BURLINGTON 18C

BURLINGTON 16B -2117E

MARATHON EOG

10C BURLINGTON 10A

BURLINGTON

-1919F

-20BURLINGEOG TON 18D 18B

-2216D MARATHON 16C BURLINGTON

-2315F

10B

-24-

-192B

BURLINGTON MARATHON BURLINGTON MARATHON 4B -2723A -2624A -2525A -30BURLINGTON 4A -291D BURLINGTON CP 11B -28MARATHON 11C MARATHON 1B -314C 1C MARATHON 1A -32-3311D BURLINGTON

20B EOG EOG 20A -30BURLINGEOG TON 20C 20D

BURLINGTON

-2921A

BURLINGTON 22A BURLING- 22B TON -2822C BURLINGTON ARMSTRONG HESS BURLINGTON

11A

BURLINGTON

BURLINGTON

BURLINGTON

-2714A

-263A

-2513A

BURLINGTON

CONT

EOG 23C

BURLINGTON

MARATHON 25C 25B

BURLINGTON

MARATHON

BURLINGTON

BURLINGTON 13C 13B

-3120E

-3221B

-3322D

-3423B MARATHON

-3524B

-36MARATHON 25E 25D

-3414B

-353B

-36BURLINGTON 13E 13D